M/s. STEAG Energy Services (I) Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 835/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7315 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 17-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H K CHOUDHARY CIT DR MS NIMITA
• Assessee Lawyers: VED JAIN SHRI RISHABH JAIN
• Keywords: Gift; Transfer pricing; International transaction; Set aside
• Section: 40A(3); 37(1); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.835/DEL/2016 (ASSESSMENT YEAR : 2011-12) M/S. STEAG ENERGY SERVICES (I) PVT. LTD., VS. ACIT, CIRCLE 24(2), 903, BHIKAJI CAMA BHAWAN, NEW DELHI. BHIKAJI CAMA PLACE, NEW DELHI 110 066. (PAN : AAFCS1399L) (APPLICANT) (RESPONDENT) ASSESSEE BY : SHRI VED JAIN, ADVOCATE SHRI RISHABH JAIN, CA REVENUE BY : SHRI H.K. CHOUDHARY, CIT DR MS. NIMITA PANDEY, SENIOR DR DATE OF HEARING : 26.03.2019 DATE OF ORDER : 26.04.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. STEAG ENERGY SERVICES (I) PVT. LTD. (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 31.12.2015 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144 C OF THE ITA NO.835/DEL/2016 2 INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2011-12 ON THE GROUNDS INTER ALIA THAT :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LD. ASSESSING OFFICER UNDER SECTION 1 43(3)/144C OF THE INCOME TAX ACT, 1961 ('ACT') IS BAD, BOTH IN THE EYES OF LAW AND ON THE FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE FINAL ASSESSMENT ORDER PASSED BY THE LD. A.O. IS BARRED B Y LIMITATION HAVING BEEN PASSED BEYOND THE TIME PRESCRIBED UNDER SECTION 144C(13) OF THE ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. A.O. HAS ERRED, BOTH ON FACTS AND IN LAW, IN ASSESSING T HE INCOME OF THE ASSESSEE AT RS.9,07,33,200/- AS AGAINST RETURNE D LOSS OF RS.6,95,65,715/- DECLARED BY THE ASSESSEE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. DRP HAS ERRED, BOTH ON FACTS AND IN LAW, IN CONFIRMING ADDITION TO THE EXTENT OF RS.2,09,91,628/-ON ACCOUNT OF DIFFERE NCE IN ARM'S LENGTH PRICE. 5(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. DRP HAS ERRED BOTH ON FACTS AND IN LAW, IN CONFIRMING T HE INCLUSION OF THE FOLLOWING COMPARABLES TAKEN BY THE LD. TPO: (I) MITCON CONSULTANCY & ENGINEERING SERVICES LTD . (II) IBI CHEMATUR (ENGINEERING & CONSULTANCY LTD) (III) MAHINDRA CONSULTING ENGINEERS LTD. (II) THAT THE ABOVE ACTION OF LD. TPO HAS BEEN CON FIRMED DESPITE THE FACT THAT THE ASSESSEE BROUGHT SIGNIFIC ANT MATERIAL & EVIDENCES ON RECORD TO DEMONSTRATE THAT THE LINE OF ACTIVITIES OF THESE COMPARABLES IS TOTALLY DIFFERENT FROM THAT OF THE ACTIVITIES OF THE ASSESSEE COMPANY. 6(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. DRP HAS ERRED IN NOT EXCLUDING MITCON CONSULTANCY & ENG INEERING SERVICES LTD. AS A COMPARABLE IGNORING THE CONTENTI ON OF THE APPELLANT THAT IT HAS EARNED INCOME MAINLY FROM THE SERVICES RENDERED IN THE NATURE OF VOCATIONAL TRAINING, IT T RAINING, LABORATORY INCOME AND IS ENGAGED IN POWER GENERATIO N AS IS EVIDENT FROM THE PROFIT AND LOSS ACCOUNT. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. DRP HAS ERRED IN IGNORING THE CONTENTION THAT THIS MITC ON CONSULTANCY & ENGINEERING SERVICES LTD. IS A GOVERN MENT SPONSORED COMPANY AS IS EVIDENT FROM THE BALANCE SH EET THAT IT ITA NO.835/DEL/2016 3 HAS RECEIVED SUBSTANTIAL GRANTS FROM THE GOVERNMENT AND IS CARRYING OUT ENERGY AUDIT ON BEHALF OF THE GOVERNME NT. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. DRP HAS ERRED IN NOT EXCLUDING IBI CHEMATUR (ENGINEERIN G AND CONSULTANCY) LTD. AS A COMPARABLE AS THIS COMPANY I S ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF ENGINEERING EQUIPMENT AND THE MAIN PROFIT HAS BEEN EARNED OUT OF SUCH ACT IVITY AS IS EVIDENT FROM ITS FINANCIAL STATEMENTS. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. DRP HAS ERRED IN NOT EXCLUDING MAHINDRA CONSULTING ENGI NEERS LTD. AS A COMPARABLE IGNORING THE CONTENTION OF THE APPE LLANT COMPANY THAT THIS COMPANY OPERATES MAINLY IN THE INFRASTRUCTURE SECTOR AND IT RECOGNIZES ITS REVENUE FOLLOWING ACCOUNTING STANDARDS 7 IN RESPECT OF THE CONSTRUCTI ON CONTRACTS. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. DRP HAS ERRED ON BOTH FACTS AND IN LAW, IN IGNORING THE CONTENTION OF THE ASSESSEE THAT COMPARABILITY CRITERIA / FILTERS HAVE NOT BEEN APPLIED BY THE TPO UNIFORMLY. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. DRP HAS ERRED ON BOTH FACTS AND IN LAW, IN REJECTING TH E CONTENTION OF THE ASSESSEE THAT TPO HAS NOT CARRIED OUT PROPER FA R ANALYSIS WHILE DETERMINING THE ARM'S LENGTH PRICE. 11. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. DRP HAS ERRED ON BOTH FACTS AND IN LAW, IN REJECTING TH E CONTENTION OF THE ASSESSEE THAT TPO HAS ERRED IN COMPUTING PLI OF THE COMPARABLE AS WELL AS PLI OF THE ASSESSEE. 12(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. DRP HAS ERRED IN NOT EXCLUDING THE TRANSACTION OF PURCH ASE OF FIXED ASSETS AMOUNTING TO RS.2,11,67,863/- AND THE REIMBU RSEMENT AMOUNTING TO RS.18,17,639/-, WHICH ARE NOT PART OF THE REVENUE, WHILE COMPUTING THE TOTAL VALUE OF THE INTERNATIONA L TRANSACTIONS AND DETERMINING THE ADJUSTMENT TO BE MADE CONSEQUEN T TO THE ARM'S LENGTH PRICE. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. DRP HAS ERRED IN NOT DIRECTING THE LD. AO TO CONSIDER V ALUE OF THE INTERNATIONAL TRANSACTION AT RS.19,88,18,571/- AS A GAINST RS.22,18,04,073/- TAKEN BY THE LD. TPO. 13. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. DRP HAS ERRED ON BOTH FACTS AND IN LAW IN CONFIRMING TH E ACTION OF TPO IN REJECTING THE CALCULATION OF THE ASSESSEE FO R MAKING APPROPRIATE ADJUSTMENT TO ACCOUNT FOR VARYING RISK PROFILES AND ITA NO.835/DEL/2016 4 DIFFERENCE IN WORKING CAPITAL OF THE ASSESSEE VIS-A -VIS COMPARABLES. 14. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED ON BOTH FACTS AND IN LAW, IN NOT FOLLOWIN G THE DIRECTION OF THE DRP THAT THE BENEFIT OF ARM'S LENGTH RANGE O F +/- 5% BE GIVEN IN VIEW OF THE PROVISO TO SECTION 92C(2) OF T HE ACT. 15. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED IN NOT COMPLYING WITH THE DIRECTIONS GIVE N BY THE LD. DRP AND MAKING ADDITION BEYOND THE AMOUNT DETERMINE D BY THE LD. DRP. 16(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO HAS ERRED ON BOTH FACTS AND IN LAW, IN MAKING THE D ISALLOWANCE OF RS.1,75,852 ON ACCOUNT OF EXPENSES INCURRED ON A CCOUNT OF GIFTS AND REWARD DISTRIBUTED TO THE EMPLOYEES. (II) THAT THE SAID DISALLOWANCE HAS BEEN MADE DESP ITE THE FACT THAT THE SAID EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND ALLOWAB LE UNDER SECTION 37(1) OF THE ACT. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : STEAG ENERGY SERVICES (IN DIA) PVT. LTD., THE TAXPAYER WAS INCORPORATED IN INDIA ON JANUARY 2 9, 2001 TO PROVIDE SERVICES IN RESPECT OF ENGINEERING AND TECH NICAL SOLUTIONS TO POWER GENERATING COMPANIES, WHICH IS WHOLLY OWNE D SUBSIDIARY OF STEAG ENERGY SERVICES, GMBH, GERMANY. DURING TH E YEAR UNDER ASSESSMENT, THE TAXPAYER ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES) AS UNDER : S. NO. NATURE OF TRANSACTION METHOD SELECTED VALUE OF TRANSACTIONS 1 SERVICE CHARGES RECEIVED TNMM 11,493,037 2 COMMISSION INCOME TNMM 19, 164,580 3 PURCHASE OF SERVICES TNMM 20,718,580 4 PURCHASE OF FIXED ASSETS TNMM 21,167,863 5 CONSULTANCY AND PROFESSIONAL FEES TNMM 178,099,991 6 REIMBURSEMENT CUP 1,817,639 ITA NO.835/DEL/2016 5 3. THE TAXPAYER IN ORDER TO BENCHMARK ITS INTERNATI ONAL TRANSACTIONS, IN ITS TP STUDY APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH OPERATING PROFIT/OPERATING COST (OP/OC) AS THE PROFIT LEVEL INDICATOR (PLI) AT 9.4% AS AGAI NST PROFIT MARGIN OF SINGLE COMPARABLE COMPANY SELECTED AT 6.00% AND HELD ITS INTERNATIONAL TRANSACTIONS AT ARMS LENGTH. 4. HOWEVER, ON THE OTHER HAND, LD. TPO SELECTED 9 C OMPARABLES AND COMPUTED THEIR PLI BY APPLYING TNMM AND PROPOSE D AN ADDITION OF 21.62% (WITHOUT WORKING CAPITAL ADJUSTM ENT) AND AT 19.91% (AFTER WORKING CAPITAL ADJUSTMENT) OF RS.2,8 2,77,606/-. 5. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D RP BY WAY OF FILING OBJECTIONS, WHO HAS GIVEN PARTIAL RELIEF TO THE TAXPAYER BY EXCLUDING 5 COMPARABLES OUT OF 9 NEW COMPARABLES SE LECTED BY THE TPO. FEELING AGGRIEVED, THE TAXPAYER HAS COME UP B EFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. LD. TPO IN ORDER TO BENCHMARK INTERNATIONAL TRAN SACTION UNDERTAKEN BY THE TAXPAYER WITH ITS AE QUA CONSULT ANCY AND PROFESSIONAL FEE AND OTHER SERVICES, USED TNMM AS THE MOST ITA NO.835/DEL/2016 6 APPROPRIATE METHOD (MAM) WITH OP/OC AS PLI INTRODUC ED 9 NEW COMPARABLES AFTER RETAINING ONE COMPARABLE OF THE T AXPAYER. FINAL SET OF COMPARABLES WITH THEIR PLI IS AS UNDER :- COMPARABLES WITHOUT WC ADJ. WC ADJ. PLI ACROPETAL TECHNOLOGIES LIMITED (SEG.) 12.56% 4.25% CADES DIGITECH PVT. LTD. (MERGED) 5.1 9% 3.71% H S C C (INDIA) LTD. 17.38% 11.94% IBI CHEMATUR (ENGINEERING & CONSULTANCY) LTD. 20.61% 21.47% KITCO LTD. 21.56% 23.08% MAHINDRA CONSULTING ENGINEERING LTD. 23.62% 23.19% MITCON CONSULTANCY & ENGG. SERVICES LTD. 28.67% 30.77% PROJECT AND DEV ELOPMENT INDIA LIMITED (SEG.) 27.13% 25.15% RITES LTD. 36.82% 34.27% T C E CONSULTING ENGINEERS LTD. 22.66% 20.92% AVERAGE 21.62% 19.91% 8. LD. TPO AFTER COMPUTING THE PLI OF COMPARABLES A T 19.91% AS AGAINST 9.40% OF THE TAXPAYER COMPUTED THE ADJUS TMENT AS UNDER:- OPERATING INCOME 997,018,309 ARMS LENGTH MARGIN (%) 19.91% ARMS LENGTH MARGIN (RS.) 198506345 ARMS LENGTH PRICE 798,511,964 PRICE CHARGED BY THE ASSESSEE 914,357,697 INTERNATIONAL TRANSACTION 221804073 5% OF PRICE CHARGED IN INTERNAT IONAL TRANSACTION 11090204 DIFFERENCE BETWEEN ALP AND PRICE CHARGED BY ASSESSEE 115,845,733 PERCENTAGE OF SALES MADE TO AES TO TOTAL REVENUE (RS.221804073 / RS.914357697*100) 24.26 PROPORTIONATE DIFFERENCE FOR WHICH ADJUSTMENT IS REQUIRED TO BE MADE 2 8101754 9. IN ORDER TO COMPRESS THE CONTROVERSY AT HAND, LD . AR FOR THE TAXPAYER SOUGHT EXCLUSION OF THREE COMPARABLE COMPA NIES RETAINED ITA NO.835/DEL/2016 7 BY THE LD. TPO/DRP, NAMELY, (I) MITCON CONSULTANCY & ENGG. SERVICES LTD.; (II) IBI CHEMATURE (ENGINEERING AND CONSULTANCY) LTD.; AND (III) MAHINDRA CONSULTING ENGINEERS LTD. 10. WE WOULD EXAMINE THE SUITABILITY OF THE AFORESA ID THREE COMPANIES AS COMPARABLE VIS--VIS THE TAXPAYER ONE BY ONE AS UNDER. MITCON CONSULTANCY & ENGG. SERVICES LTD. (MITCON) 11. LD. AR FOR THE TAXPAYER SOUGHT EXCLUSION OF MIT CON ON GROUNDS INTER ALIA THAT IT IS FUNCTIONALLY INCOMPAR ABLE; THAT INCOME EARNED BY THE TAXPAYER FROM CONSULTANCY FEE DURING THE YEAR UNDER ASSESSMENT IS RS.28,70,17,235/- OUT OF TOTAL REVENU E OF RS.47,81,96,289/- I.E. 60.02%; THAT THIS COMPANY FA ILS THE SERVICE REVENUE FILTER OF 75%; THAT MITCON RECEIVED VARIOUS GRANTS FROM GOVERNMENT OF INDIA WHICH HAS EFFECTED ITS PROFITAB ILITY AND RELIED UPON THE DECISIONS RENDERED BY THE HONBLE HIGH COU RT AND COORDINATE BENCH OF THE TRIBUNAL IN CASE CITED AS PR.CIT VS. WSP CONSULTANTS INDIA (P.) LTD. (2018) 253 TAXMAN 58 AN D GRANITE SERVICES INTERNATIONAL (P.) LTD. VS. ACIT IN ITA NO .532/DEL/2016 DATED 12.09.2017 . 12. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVE NUE BY RELYING UPON THE ORDERS PASSED BY THE LD. TPO AS WE LL AS LD. DRP ITA NO.835/DEL/2016 8 CONTENDED THAT THE MAJOR REVENUE OF MITCON OF RS.20 CRORES IS FROM CONSULTANCY FEES AND AS SUCH, IT IS A VALID COMPARA BLE. 13. PERUSAL OF THE SCHEDULE XIV FORMING PART OF THE BALANCE SHEET AND P&L ACCOUNT, AVAILABLE AT PAGE 727 OF THE PAPER BOOK, SHOWS THAT MITCON HAS INCOME FROM THE FACILITIES AT BIO TECHNOLOGY INCUBATION CENTRE AND INCOME FROM VARIOU S SCHEMES AS LAUNCHED BY THE GOVERNMENT OF INDIA WHICH IS EXT RACTED FOR READY PERUSAL AS UNDER :- 5.3 INCOME FROM THE FACILITIES AT BIO TECHNOLOGY I NCUBATION CENTRE IS ACCOUNTED AS FOLLOWS: A) REVENUE FROM TRAINING 10 ENTREPRENEURS IS RECOGN ISED WHEN RECEIVED. B) REVENUE FROM THE HAND - HOLDING SERVICES TO INCU BATES AND OTHER ENTREPRENEURS IS RECOGNIZED ON RENDERING THE RELATED SERVICES & COMPLETION OF JOB / ASSIGNMENT. C) REVENUE FROM INFRASTRUCTURE USE IS RECOGNIZED ON COMPLETION OF ASSIGNMENT. D) REVENUE FROM ENVIRONMENT LABORATORY IS ACCOUNTED ON THE BASIS OF COMPLETION OF THE ASSIGNMENT / JOB. 5.4 THE INCOME UNDER PRIME MINISTERS ROJGAR YOJANA (PMRY), SPECIAL COMPONENT PLAN (SCP), SWAMJAYANTI GRAM SWAR OZGAR YOJANA (SGSY) AND SWAMA JAYANLI SHAHAN ROZGAR YOJANA (SJSR Y) IS ACCOUNTED ON GROSS BASIS ( PREVIOUS YEAR ON NET OFF EXPENDITURE) BASED ON CERTIFICATES RECEIVED FROM IMPLEMENTING AGENCIES EVIDENCING THE COMPLETION OF THE TRAINING PROGRAMME. 14. WHEN WE EXAMINE THE PROFIT & LOSS ACCOUNT OF MI TON FOR THE YEAR ENDING 31.03.2011, AVAILABLE AT PAGE 732 OF TH E PAPER BOOK, IT SHOWS THAT MITON HAS INCURRED EXPENSES ON PROVIDING VOCATIONAL TRAINING AND IT TRAINING, WHICH CHANGES ITS PROFILE . PERUSAL OF P&L ACCOUNT, AVAILABLE AT PAGE 733 OF THE PAPER BOOK, S HOWS THAT MITON HAS EARNED RS.91,931,695, RS.40,436,273 AND RS.13,3 93,403/- AS ITA NO.835/DEL/2016 9 ITS INCOME FROM VOCATIONAL TRAINING PROGRAMMES, INC OME FROM IT TRAINING AND INCOME FROM LABORATORIES RESPECTIVELY. 15. FURTHERMORE, WHEN WE EXAMINE SCHEDULE VIII FORM ING PART OF THE BALANCE SHEET, AVAILABLE AT PAGE 725 OF THE PAPER BOOK, IT SHOWS THAT MITCON HAS ALSO INCOME FROM WIND POWER G ENERATION TO THE TUNE OF RS.51,91,068/-. FURTHERMORE, WHEN WE E XAMINE SCHEDULE II TO THE BALANCE SHEET AT PAGE 721 OF THE PAPER BOOK, IT SHOWS THAT MITCON HAS RECEIVED GRANTS FROM GOVERNME NT OF INDIA UNDER VARIOUS SCHEMES WHICH CERTAINLY AFFECTS ITS P ROFITABILITY. 16. HONBLE JURISDICTIONAL HIGH COURT IN CASE CITED AS WSP CONSULTANTS INDIA (P.) LTD. (SUPRA) HAVING IDENTICAL BUSINESS PROFILE AS THAT OF THE TAXPAYER REJECTED MITCON ON THE GROUND THAT IT IS DERIVING LESS THAN 75% REVENUE FROM THE CONSULTA NCY SERVICES. 17. SO, WE ARE OF THE CONSIDER VIEW THAT MITCON IS NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDED. IBI CHEMATUR (ENGINEERING & CONSULTANCY) LTD. (IBI CHEMATUR) 18. THE TAXPAYER SOUGHT TO EXCLUDE IBI CHEMATUR O N THE GROUNDS INTER ALIA THAT IT FAILS 75% SERVICE REVENU E FILTER APPLIED BY THE TAXPAYER AND ALSO ACCEPTED BY THE TPO; THAT IT HAS VARIOUS SEGMENTS BUT NO SEGMENTAL FINANCIALS ARE AVAILABLE; THAT IBI CHEMATUR IS NOT MERELY PROVIDING ENGINEERING SERVIC ES AND RELIED ITA NO.835/DEL/2016 10 UPON THE DECISIONS OF THE COORDINATE BENCH OF THE T RIBUNAL IN BECHTEL INDIA (P) LTD. VS. DCIT IN ITA NO.1478/DEL/ 2015 DATED 21.12.2015 AND BG EXPLORATION & PRODUCTION INDIA LT D. VS. JCIT IN ITA NOS.1170 AND 1581/DEL/2015 DATED 24.04. 2017 . 19. WHEN WE EXAMINE ANNUAL REPORT OF IBI CHEMATUR A T PAGE 747 OF THE PAPER BOOK UNDER THE HEAD REVIEW OF PER FORMANCE, IT SHOWS THAT ITS ONLY BUSINESS IS OF HIGH END ENGINEE RING SERVICES WITH THE USE OF SPECIFIC TECHNOLOGIES AND HUGE RESE ARCH AND DEVELOPMENT EXPENDITURE ALONG WITH R&D CENTRE. REL EVANT PORTION OF REVIEW OF PERFORMANCE IS EXTRACTED AS UNDER :- DURING THE YEAR YOUR COMPANY HAS PROGRESSED ON USE OF SMART PLANT SUITE OF SOFTWARE'S. ALL ENGINEERS ARE TRAINE D ABOUT NEW SOFTWARE. THE COMPANY HAS UNDERTAKEN CONTINUOUSLY U PGRADING TECHNOLOGIES AND ALSO IMPROVING COMPETENCE OF STAFF . YOUR COMPANY HAS EMPLOYED HIGHLY TRAINED TECHNICAL STAFF . YOUR COMPANY IS ALSO MARKETING THESE CAPABILITIES IN THE DOMESTIC AS WELL AS OVERSEAS MARKET. YOUR COMPANY IS IN A PROCE SS OF USING SMART PLANT FOUNDATION FOR DOCUMENT MANAGEMENT SYST EM FOR MANAGING REVISION AND VERSIONS OF THE DOCUMENTS. CO MPANY IS PLANNING TO BRING TECHNOLOGIES OF BIOSTIL 2000 PROC ESS. THESE TECHNOLOGIES FIND SYNERGY WITH BIOSTLL 2000. THE ACTIVITY IN BIOSTIL 2000, TAKES US TO SUGAR INDUSTR Y, WHICH REMAINS AS THE BIGGEST BIOMASS PROCESSORS IN THE CO UNTRY. YOUR COMPANY CONTINUES TO CARRY OUT DOMESTIC BUSINESS AC TIVITIES IN' IBIC ENGINEERING (DIV.OF IBI CHEMATUR ( ENGG & CONY ) LTD) DIVISION OF THE COMPANY AS STATED IN LAST YEAR. 20. WHEN WE EXAMINE P&L ACCOUNT OF IBI CHEMATUR AT PAGE 754 OF THE PAPER BOOK, IT SHOWS THAT IT HAS INCOME OF SALE OF ENGINEERING EQUIPMENT TO THE TUNE OF RS.99,275,000/ -, WHEREAS SEGMENTAL FINANCIALS ARE NOT AVAILABLE. FURTHERMOR E, IT ALSO FAILS ITA NO.835/DEL/2016 11 SERVICE REVENUE FILTER WHICH IS 63.47%. FURTHERMOR E, IBI CHEMATUR HAS SPENT RS.113,50,446/- AS R&D EXPENDITU RE WHICH IS 3.93% OF THE TURNOVER AS AGAINST NIL R&D EXPENDITUR E OF THE TAXPAYER WHICH IS A CAPTIVE SERVICE PROVIDER. 21. COMPARABILITY OF IBI CHEMATUR HAS BEEN EXAMINED BY THE COORDINATE BENCH OF THE TRIBUNAL IN BECHTEL INDIA (P) LTD. AND BG EXPLORATION & PRODUCTION INDIA LTD. (SUPRA) HAVING SIMILAR BUSINESS PROFILE AS THAT OF THE TAXPAYER AND HAS OR DERED TO BE EXCLUDED ON GROUND OF NON-AVAILABILITY OF FINANCIAL SEGMENTAL AND SUBSTANTIAL EXPENDITURE ON R&D ACTIVITIES. SO, WE A RE OF THE CONSIDERED VIEW THAT IBI CHEMATUR IS NOT A SUITABLE COMPARABLE VIS--VIS THE TAXPAYER, HENCE ORDERED TO BE EXCLUDE D. MAHINDRA CONSULTING & ENGG. SERVICES LTD. (MAHINDRA) 22. THE TAXPAYER SOUGHT EXCLUSION OF MAHINDRA ON TH E GROUNDS INTER ALIA THAT IT IS ENGAGED IN VARIETY OF SERVICE S; THAT IT IS PROVIDING CONSULTANCY IN THE AREA OF SPECIAL ECONOMIC ZONES, WATER SUPPLY AND SEWAGE, SOLID WASTE MANAGEMENT, URBAN INFRASTRU CTURE, AGRI AND HORTI INFRASTRUCTURE, SOCIAL INFRASTRUCTURE, MA RINE INFRASTRUCTURE, INDUSTRIAL INFRASTRUCTURE, RENEWABLE ENERGY, SUSTAI NABILITY STUDIES, INSTITUTIONAL STRATEGIES, INDUSTRIAL PLANTS AND SYS TEMS ETC.; THAT ITA NO.835/DEL/2016 12 FINANCIAL SEGMENTAL ARE NOT AVAILABLE; THAT COMPANY RECOGNIZES ITS REVENUES ON PERCENTAGE COMPLETION METHOD AND RELIED UPON THE DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL IN ALCATEL- LUCENT INDIA LTD. VS. ITO IN ITA NOS.2154 & 2209/DE L/2014 DATED 06.04.2018; ALCATEL-LUCENT INDIA LTD. VS. DCI T IN ITA NO.6856/DEL/2015 DATED 06.11.2017; AND EMERSON PRO CESS MANAGEMENT POWER & WATER SOLUTIONS INDIA (P.) LTD. VS. ACIT IN IA NO.5343/DEL/2012 DATED 13.04.2016 . 23. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVE NUE RELIED UPON THE ORDERS OF THE LD. TPO/DRP. 24. PERUSAL OF PARA 13.3 OF THE TP ORDER APPARENTLY SHOWS THAT THE TPO HAS EXTENSIVELY EXAMINED FUNCTION OF MAHIND RA WHICH ARE COMPARABLE TO THE TAXPAYER. SO FAR AS CONSULTANCY SERVICES BEING PROVIDED BY THE TAXPAYER ARE CONCERNED, COMPARABILI TY OF MAHINDRA HAS BEEN DULY EXAMINED BY THE COORDINATE BENCH OF T HE TRIBUNAL IN BG EXPLORATION AND PRODUCTION INDIA LTD. VS. JCIT I N ITA NO.1170/DEL/2015 ORDER DATED 24.04.2017 AND HAS BEEN HELD TO BE A SUITABLE COMPARABLE VIS--VIS COMPANY PROVIDING C ONSULTANCY SERVICES BY RETURNING FOLLOWING FINDINGS :- (IX) MAHINDRA CONSULTING ENGINEERS LIMITED THIS COMPANY IS SELECTED BY THE LD. TRANSFER PRICIN G OFFICER AND THE FUNCTIONAL PROFILE OF THE COMPANY IS STATED TO BE PROVIDING CONSULTANCY SERVICES IN THE AREAS OF SPECIAL ECONOM IC ZONES, WATER SUPPLY AND 7H, SOLID WASTE MANAGEMENT, URBAN ITA NO.835/DEL/2016 13 INFRASTRUCTURE, AGREE AND FOR CULTURAL INFRASTRUCTU RE, SOCIAL INFRASTRUCTURE, PORTS AND HARBOR OFF SHORE ETC. THE LD. AUTHORISED REPRESENTATIVE HAS STATED THAT THE FUNCT IONAL PROFILE OF THE COMPANY IS NOT COMPARABLE. WE HAVE CAREFULLY PERUSED ANNUAL REPORT OF THE COMPANY SUBMITTED BY THE ASSES SEE AT PAGE NO. 305 - 323 OF THE PAPER BOOK WHEREIN IT IS CLEAR LY DEMONSTRATED THAT THE ASSESSEE IS ENGAGING THE CONS ULTING SERVICES AND IT IS ONLY A REPORTABLE SEGMENT OF CON SULTANCY SERVICES. LOOKING AT THE FUNCTIONAL PROFILE OF THE ASSESSEE AS WELL AS THE COMPARABLE COMPANY, IT IS APPARENT THAT BOTH ARE ENGAGED IN THE CONSULTANCY SERVICES AREA. MERELY BECAUSE TH EY ARE PROVIDING CONSULTANCY IN A DIFFERENT FIELD, IT DOES NOT MAKE THEIR FUNCTIONAL PROFILE DISSIMILAR, UNLESS THERE ARE VAS T DIFFERENCES IN THE FUNCTIONS PERFORMED. IN VIEW OF THIS WE DO NOT FIND ANY REASON TO EXCLUDE THIS COMPARABLE AND THEREFORE WE HELD THAT THE LD. TPO IS CORRECTLY INCLUDED THIS COMPANY FOR COMP ARABILITY ANALYSIS. 25. SO, FOLLOWING THE DECISION RENDERED BY THE COOR DINATE BENCH OF THE TRIBUNAL IN BG EXPLORATION AND PRODUCTION INDIA LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE TPO HAS RIGHTLY RETAINED THE MAHINDRA AS A COMPARABLE AFTER EXAMINI NG THE CONTENTIONS RAISED BY THE ASSESSEE. HOWEVER, WE AR E OF THE CONSIDERED VIEW THAT IN VIEW OF THE SETTLED PRINCIP LE OF LAW, THE ASSESSEE IS ENTITLED FOR BENEFIT OF WORKING CAPITAL ADJUSTMENT IN ORDER TO BENCHMARK ITS INTERNATIONAL TRANSACTION. CORPORATE GROUNDS 26. AO MADE ADDITION OF RS.1,75,852/- BY DISALLOWIN G THE MISC. EXPENSES LIKE DIWALI GIFTS AND PRESENTS GIVEN BY TH E TAXPAYER ON THE GROUND THAT FROM THE LEDGER ACCOUNT OF GIFTS AN D PRESENTS FOR THE RESPECTIVE PERIOD, IT IS FOUND THAT GIFTS AND PRESE NTS FOR THE ITA NO.835/DEL/2016 14 RESPECTIVE PERIOD HAVE BEEN DONE IN CASH WHICH IS A GAINST THE PROVISIONS OF SECTION 40A(3) OF THE INCOME-TAX ACT, 1961. HOWEVER, IT IS THE CASE OF THE TAXPAYER THAT THESE EXPENSES WERE INCURRED EXCLUSIVELY FOR BUSINESS PURPOSES WHICH IS TO MAINTAIN HIGH MORALE OF THE EMPLOYEES WHICH RESULTED INTO CO ST REDUCTION AND MORE PROFIT OF THE COMPANY IN THE OVERALL OPERA TION. 27. WE ARE OF THE CONSIDERED VIEW THAT WHEN UNDISPU TEDLY TAXPAYER HAS INCURRED THESE EXPENSES ALLEGEDLY ON G IFTS AND PRESENTS BY WAY OF CASH, THE SAME CANNOT BE ATTRIBU TED TO DIWALI GIFTS AND PRESENTS ETC. WHICH IS ALSO AGAINST THE P ROVISIONS CONTAINED U/S 40A(3) OF THE ACT. SO, WE HEREBY CON FIRM THE ADDITION MADE BY THE AO AND CONSEQUENTLY, CORPORATE GROUNDS ARE DECIDED AGAINST THE TAXPAYER. 28. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 26 TH DAY OF APRIL, 2019. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 26 TH DAY OF APRIL, 2019 TS ITA NO.835/DEL/2016 15 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.